treasury auction - All posts tagged treasury auction

Looks like bonds finally got too rich for their own good. Bonds had been doing great today leading into this afternoon’s auction of $16 billion in 30-year Treasuries. But the 30-year yield just spiked after the auction showed investors balking at 30-year yields that had fallen below 3.40% earlier today. The auction yielded 3.440%, causing existing 30-year bond yields to rise to 3.423% currently from 3.385% just moments earlier, per Tradeweb data. The 30-year note, which had been up 10/32 in price on the day right before the auction, is now down 12/32 on the day.

Ian Lyngen of CRT Capital calls the auction “weak” and notes the lack of direct bidders, who took 8.4% of the new notes versus a 16% average over the past four auctions. The bid-to-cover ratio fell to 2.09% from a 2.45% average over the past four auctions.

Treasuries are having a good afternoon Wednesday, moving higher shortly after midday with the ten-year Treasury note currently up 11/32 in price to yield 2.918%, per Tradeweb data.

A couple of factors at play here. First, several analysts had predicted earlier today that Verizon‘s (VZ) record-breaking $49 billion bond sale today would give a boost to Treasuries, as the pricing of the gargantuan deal would be accompanied by an unwinding of rate-lock agreements in which corporate bond issuers use the Treasury market to hedge against any last-minute movement in interest rates ahead of bond sales.

Second, the Treasury auctioned off $21 billion of ten-year notes this afternoon. The coincidental timing of these events made for an “outstanding” auction, according to Tom DiGaloma of ED&F Man Capital. And here’s Adrian Miller of GMP Securities to break it all down:

The U.S. Treasury’s re-opening of the 10Y UST note via an auction of $21 billion notes has been somewhat complicated by the massive Verizon Corp $49 billion bond deal. While we likely saw particular focus on the 5Y UST tenor via rate lock-up agreements, the 10Y UST has also been pressured of late due to the market positioning itself ahead of this VZ deal. Hence the unwind of the various lock up agreements on Wednesday has provided a boost to treasuries across the curve….

The auction was priced to yield 2.946%, the highest stop since June 2011, -2bp below the WI bid side yield and +33bp higher than the August auction. The bid-to-cover was very solid….

At this point the bond market has fully factored in the prospect of a September taper, even more than we think is warranted. With that, going into the Fed’s FOMC meeting on September 17-18, yields should remain relative stable which should provide the basis for solid auction results this week.

Tuesday has seen a step back from the bond sell-off of recent days and weeks, but for Treasury yields the path of least resistance continues to be higher, even if it’s just incrementally so. The ten-year note is down 9/32 in price on the day, lifting its yield to 2.582%, per Tradeweb data, and the 30-year bond is down 23/32 to yield 3.603%.

Earlier in the day, the Treasury sold $35 billion of two-year notes in an auction that a sampling of market participants described as “soft,” “lackluster” and “lukewarm,” even though the short end of the Treasury yield curve has held up comparatively well in recent weeks thanks to the Fed’s stated plan to pin down short-term rates until at least 2015.

Treasuries are on the rebound this afternoon after a strong 10-year auction undid the damage done by a strong retail sales report earlier this morning. Both the 10-year and 30-year yield are unchanged on the day as of 1:30 EDT, per Tradeweb data, at 2.023% and 3.218% respectively. Here’s RBS on the auction:

The auction was very strong by any metric, whether you look at the thru bid or the very higher investor take (or put another way, the very low 30% allocated to dealers). Helping the success of this auction was likely the cheapness of the issue outright in the context of the 2013 range, as well as the fact that it is relatively cheap on the curve.

And here’s Adrian Miller of GMP Securities:

Following a “soft” 3-yr UST auction on Tuesday, Wednesday’s auction of $29 billion 10-yr notes was well received. The notes were priced to yield 2.029%, 2.5bp below the WI yield and 1.7bp below the February auction yield as the tail declined to 2.4bp compared to 3.6bp in February. The bid-to-cover was 3.19x, stronger than February’s 2.68x b/c and above the six-auction average of 2.86x….

The higher yield has clearly brought investors back to the auction as positive real yields shifts the math behind relative value analysis….

Many direct bidders are convinced that despite recent signs of improved economic performance, it is unclear the Fed will shift its current policies. Indeed, while you can make the case for a quickening pace in U.S. economic activity following better than expected job growth, solid core retail sales and higher inventory levels, which may warrant an upside revision to our 2H 2013 annualized GDP forecast, there remains notable headwinds that presents the economy with challenges. Therefore, we expect the 10-yr yield trading range to average 1.95% – 2.15% over the near term as upside rate risk is limited.

After weakening earlier in the morning and then rebounding by noon, Treasuries are essentially steady now following an auction of $13 billion in 30-year bonds early Thursday afternoon.

The auction was variously described as “soft” (Ian Lyngen of CRT Capital) and both “soft” and “weak” (Adrian Miller of GMP Securities), but feel free to use your own pejorative descriptor if you’re scoring at home. The bonds priced to yield 2.904% with a bid-to-cover ratio of 2.49%, down from 2.68% at last month’s auction. The ratio is a sign of demand; the higher the better. More from Miller, who blames inflation worries:

The overall weak bid-to-cover would suggest a differentiation is focus regarding inflation concerns and growth and macro risks. In the case of Wednesday’s strong 10-yr auction investor’s concerns about macro risks and slowing growth trumped longer term inflation concerns. However, with Thursday’s long-bond auction, where the duration is twice as long as the 10-yr UST note, we saw evidence that investors were more concerned about inflation. While we did see direct bidders step up their appetite, likely the results of long duration players needing to match up their assets and liabilities, in general the long bond auction was a victim of the Fed’s QE3 program.

Ten-year notes started the day yielding 1.679% and were recently yielding 1.684%, while 30-year bonds were up 12/32 in price to yield 2.875%, per Tradeweb data.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.